(Reuters) - Sovereign bond yields in developed economies will rise modestly over the coming year as subdued inflation keeps them in check, even as major central banks move away from ultra easy policy, a Reuters poll found.

While the global economy has picked up momentum this year there is still a gap between what major central banks target - inflation - and the shift in their bias towards policy tightening.

In many countries, inflation has still to reach target and expectations are for it not to for some time to come, something stock markets have completely discounted, hitting record highs this year.

But the latest poll of over 60 bond strategists and analysts taken Sept 21-28 showed forecasts for bond yield rises have been reigned in compared with just three months ago.

U.S. 10-year Treasury yields US10YT=RR are predicted to end this year around where they started, 2.43 percent, despite the Federal Reserve having raised interest rates twice in 2017 and is expected to do so again in December.

In line with the expected Fed policy tightening path, the U.S. two-year Treasury yield, which is sensitive to interest rate expectations, is estimated to rise over 60 basis points to 2.10 percent in a year from 1.47 percent on Thursday.

But the 10-year Treasury yield is expected to have risen only about 50 basis points in a year to 2.75 percent compared to 2.90 percent predicted just three months ago.

That shows the yield spread between the 10- and the 2-year will flatten to around 65 basis points in a year, the lowest since almost a decade ago and around the time when much of the world plunged into recession.

“Basically at that point 12 months from now we will most likely be running into the end of the economic cycle or we will be approaching quickly, flatter yield curve is about to be curating economic expectations,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.

“Now we are most likely much closer to the next economic downturn than we are the last one by the passage of time and number of other random factors, but the markets will start pricing in risk of that downturn six to 12 months before that happens.”

The latest expectations also come after the U.S. central bank announced a plan to shrink its over $4 trillion balance sheet starting in October.

When asked on the pace of the Fed’s current planned balance sheet normalization, all but one of the 30 respondents said it was “just about right”. One said it was “too slow”.

“A faster pace could disturb markets, and the Fed wants to avoid a strong sell-off in longer-dated treasuries,” said Cyril Regnat, fixed income strategist at Natixis.

SAME STORY IN EUROPE

Yields on German 10-year Bunds have risen over 25 basis points this year on improving economic conditions in the euro zone and about 15 basis points for British Gilts as a fall in sterling has pushed inflation higher.

But expectations are for the German 10-year yield to rise about 35 basis points to 0.85 percent from 0.49 on Thursday over the next 12 months.

That despite the European Central Bank being widely expected to announce in October a cut to its monthly asset purchases amount next year. [ECILT/EU]

British 10-year Gilt yields are forecast to rise about 10 basis points to 1.50 percent in a year even though the Bank of England is expected to take interest rates higher, possibly as early as November. [BOE/INT]

“In the long-end clearly there are continued uncertainties abound that we think are going to continue to weigh upon just how high rates (yields) will go going forward,” said Sam Bullard, senior economist at Wells Fargo.